What’s your (market) type?

In the late 1990s, the dot-com era was in full bloom, with a record number of breakout stocks that were riding the crest of the Internet frenzy. Momentum trading was all the rage. Traders simply would wait for a breakout, buy and hold on. Substantial profits by mid-day were common.

The profits attracted a lot of money to the stock market, both from new investors and traders as well as additional investment from existing market participants. For many, the dot-com surge was an investor’s Golden Age. Many even borrowed additional cash to invest, thinking that it would never end.

But end it did.

Eventually, a financial bubble formed, followed by a bust in early 1999. The effects of the collapse in many ways still are being felt today. One effect has been a long-term shift in the market’s personality. Breakouts have dried up or failed to materialized. What worked in the late 1990s, no longer makes money. Traders who continued to bet big in old familiar ways faded into financial obscurity as their accounts dwindled.

In some ways, current markets mimic the sideways torment of the 1970s, when stock market profits were hard to come by and breakouts failed to provide easy money (see “Sideways seventies,” below).